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The Basics
Reverse Mortgages: Money From Home for Senior
Citizens
By: ElderLawAnswers.com
 Aug.
12, 2005 - Under our system of paying for long-term care, you may be
able to qualify for Medicaid to pay for nursing home care, but in most
states theres little public assistance for home care. Most people want
to stay at home as long as possible, but few can afford the high cost of
home care for very long. One solution, which is growing in popularity,
is to tap into the equity built up in your home.
If you own a home and are at least 62 years old,
you may be able to quickly get money to pay for home care (or for
anything else) by taking out a reverse mortgage.
Reverse mortgages, financial arrangements designed
specifically for older homeowners, are a way of borrowing that
transforms the equity in a home into liquid cash without having to
either move or make regular loan repayments. They permit house-rich but
cash-poor elders to use their housing equity to, for example, pay for
home care while they remain in the home, or for nursing home care later
on. The loans do not have to be repaid until the last surviving borrower
dies, sells the home or permanently moves out.
In a reverse mortgage, the homeowner receives a sum
of money from the lender, usually a bank, based largely on the value of
the house, the age of the borrower, and current interest rates. For
example, a 70-year-old borrower with a $200,000 house in Westchester
County, New York, would currently be able to receive a maximum loan of
$113,461. The lower the interest rate and the older the borrower, the
more that can be borrowed.
Homeowners can receive the money in one of three
ways (or in any combination of the three): in a lump sum, as a line of
credit that can be drawn on at the borrowers option, or in a series of
regular payments, called a reverse annuity mortgage. The most popular
choice is the line of credit because it allows a borrower to decide when
he or she needs the money and how much. Moreover, no interest is charged
on the untapped balance of the loan.
Although it is often assumed that an elderly person
would want to use the funds from a reverse mortgage loan for health
care, there are no restrictions--the funds can be used in any way. All
borrowers must be at least 62 years of age to qualify for most reverse
mortgages. In addition, a reverse mortgage cannot be taken out if there
is prior debt against the home. Thus, either the old mortgage must be
paid off before taking out a reverse mortgage or some of the proceeds
from the reverse mortgage used to retire the old debt.
For more on reverse mortgages, including some of
the downsides and their impact on public benefits,
click here.
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